Merck: Sales Lighter Still; Non-GAAP EPS “Beat” Driven Primarily By Finite Expense Savings

Globally, Januvia revenue has actually declined by 1 per cent (vs. Q3 2012); and that includes 3 per cent of currency headwind, so the non-adjusted growth in Januvia® would have been positive 2 per cent, ex-currencies. Company wide, currencies took an additional 2 per cent from the sales line [I had guessed 3 per cent, but Whitehouse Station has apparently added to its currencies hedging positions, since last quarter, booking only $11 million of currency exchange losses, for Q3 2013, compared to $50 million in Q3 2012]. R&D spending is down by about $200 million, at $1.7 billion in Q3 2013 (compared to $1.9 billion in Q3 2012).

That’s the pull-through of Dr. Perlmutter’s refocusing efforts. However, Merck charged off north of $870 million in Q3 2013 alone, to get there. These sorts of restructuring savings won’t be available forever, to boost bottom line non-GAAP EPS. And this quarter, they cost 8,500 people their careers, and livelihoods.

Before currencies, sales in Animal Health were flat — but currencies caused an actual decrease of 2 per cent compared to Q3 2012. The brightest spot on the income statement released this morning is Remicade®/Simponi® — which was up 16 per cent, and up 22 per cent given favorable currency exchange rates-trends in the countries where Merck holds the right to sell it. Per Reuters:

. . . .[Merck said] sales of its Januvia diabetes treatment fell, raising more concerns about growth prospects for the company’s biggest product. . . .

The company said on Monday it earned $1.12 billion, or 38 cents per share, in the third quarter. That compared with $1.73 billion, or 56 cents per share, in the year-earlier period. . . .

For the full year, Merck now expects a 5 to 6 per cent decline in global sales (and about half of that decline being currencies related); with non-GAAP EPS coming in at year end between $3.48 and $3.52 per share. Shares are off around $0.80 here, on the NASDAQ’s pre-market screen. So it goes. Graphics soon.


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